Sectoral shifts and comovements in employment

Sectoral shifts in employment from manufacturing to services are viewed as a structural transformation which occurs over a long period of time. Economists point out that a rapid technological advance in the manufacturing sector relative to that in the service sector is the underlying cause of this phenomenon. However, few have associated this with business cycle analyses. This paper finds that a relatively faster technological advance in the manufacturing sector (named manufacturing-specific technology shock) generates sectoral comovements in employment in the short run while it leads to sectoral shifts in employment in the long run. The behavior of investment is the key to this finding. •Sectoral shifts in employment from manufacturing to services are a structural change.•Rapid technological advances in the manufacturing sector can be an underlying cause.•The same cause may generate sectoral comovements in employment.•The behavior of investment is the key to this finding.